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Brennan v. Midwestern United Life Insurance Co.

August 3, 1971

TORA C. BRENNAN, PLAINTIFF,
v.
MIDWESTERN UNITED LIFE INSURANCE COMPANY, DEFENDANT-APPELLEE. APPEAL OF CLAUDE M. HERRIMAN ET AL., MOVANTS-APPELLANTS



Swygert, Chief Judge, and Cummings and Stevens, Circuit Judges. Stevens, Circuit Judge (dissenting).

Author: Swygert

SWYGERT, Chief Judge.

The issue on this appeal is whether in a class action under Rule 23, Fed.R. Civ.P., those identifiable absent members of the representative plaintiff's class who received notice of the pendency of the suit and neither elected to be excluded nor entered an appearance may be required to submit to discovery under Rules 33 and 34, Fed.R.Civ.P., on pain of dismissal of their claims with prejudice for failure to respond. This issue arises out of the denial of appellants' (hereinafter designated "movants") motion under Rule 60(b), Fed.R.Civ.P., which asserted that the dismissal of their claims and those of all others similarly situated for noncompliance with a discovery order was void under clause (4) of Rule 60(b) or should have been set aside under residual clause (6) of that rule.*fn1

The underlying class action from which movants were dismissed was instituted by Tora C. Brennan against Midwestern United Life Insurance Company. In that action the plaintiff alleged that Midwestern had violated section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, by aiding and abetting the fraudulent conduct of Michael Dobich, a dealer in securities. The plaintiff asked damages for herself and for all others, including movants, who never received delivery of stock in Midwestern which they had purchased from Dobich. The district court, at a bench trial, found for the plaintiff and all the remaining members of her class. Brennan v. Midwestern United Life Ins. Co., 286 F. Supp. 702 (N.D.Ind.1968). On appeal this court affirmed, 417 F.2d 147 (1969), and certiorari was denied by the Supreme Court, 397 U.S. 989, 90 S. Ct. 1122, 25 L. Ed. 2d 397 (1970).

The facts forming the basis for the district court's determination of Midwestern's liability are fully set forth in Judge Eschbach's opinion, 286 F. Supp. 702, and need not here be repeated. We deem it necessary, however, to state the circumstances leading to the dismissal of movant's claims during the pendency of the action and to the subsequent motion under Rule 60(b).

Shortly after a determination that the suit should be maintained as a class action, 259 F. Supp. 673 (D.C.1966), the district court, on October 12, 1966, caused a notice, pursuant to Rule 23(c) (2), Fed.R.Civ.P., to be sent to all prospective members of the class, including movants. The notice described the nature of the action and informed those to whom the notice was sent that they could elect to be excluded from the action or to remain in the class and be represented either by counsel for the named plaintiff or by an attorney of their own choosing. Approximately 600 persons received the notice; of these, 535 became class members by not executing and returning the form (included with the notice) indicating their desire to be excluded. On January 4, 1967 the district court directed that the members of the class be notified of its order of that date setting a deadline of March 1, 1967 for the appearance of counsel of the class members' own choosing, but repeating what was said in the original notice, that such appearance was not necessary and, absent obtaining their own counsel, the interests of the class members would be represented by counsel for the named plaintiff. Prior to this order, Midwestern had filed requests under Rules 33 and 34, Fed.R.Civ.P., for production of certain documents and records and for answers to interrogatories by the named plaintiff and each member of her class. On December 22, 1966 the court granted the motion to produce, directing compliance by March 1, 1967, and also instructed counsel for the named plaintiff and the defendant to agree on the form of the interrogatories to be submitted.

On January 12, 1967, at the district court's direction, counsel for the named plaintiff mailed to each class member, including movants, copies of the January 4, order, the order to produce documents, and the agreed-upon interrogatories. Plaintiff's counsel also prepared and mailed a memorandum describing the discovery proceedings, explaining the reason for the interrogatories and the production of documents, specifically mentioning the March 1 deadline for compliance, and encouraging each class member to seek the advice and help of his own lawyer, if he had one, or to request assistance from plaintiff's counsel.

On February 20, 1967 counsel for the named plaintiff wrote each class member, including movants, who had not responded to the interrogatories or the order for production, reminding them that their responses were required by March 1, 1967. The letter ended by repeating that if there were any questions, the recipient should contact his attorney or plaintiff's counsel.

At a pre-trial conference, held on April 17, 1967, the court directed counsel for the named plaintiff to prepare a list of those who had not yet answered the interrogatories or produced the documents. The judge stated that he would dismiss with prejudice the claims of such persons unless they responded within twenty days. On May 4, 1967, plaintiff's counsel wrote those, including movants, who had not complied with the discovery orders, explaining the consequences of their noncompliance. The letter read in part: "Obviously, we cannot predict the outcome of this case. If, however, you permit your claim to be dismissed, and we ultimately recover damages from Midwestern United Life, you would not be permitted to share in the recovery. * * * We need your cooperation, however, if we are to recover any moneys on your behalf. Please send us your answers to the Interrogatories and the documents subject to production by June 1, 1967."

On June 7, 1967 the district court ordered the unresponsive members of the class, including movants, to show cause on or before July 14, 1967 why their claims should not be dismissed with prejudice for failure to answer the interrogatories. On June 9 counsel for the named plaintiff sent to all who had not responded copies of the show-cause order together with a letter warning them that unless the interrogatories were answered by July 14, their claims would be dismissed with prejudice. The letter read in part: "Obviously you are not required to participate in the case if you have no desire to do so. * * * On the other hand, if we are successful * * * we would hate for you to lose your share of the recovery merely because you have failed to answer the Interrogatories in accordance with Federal Court procedure."

The July 14 deadline passed; and on August 9, 1967 Midwestern filed its motion to dismiss with prejudice the claims of those class members, including the movants, who had failed to respond either to the interrogatories or to the show-cause order. On August 17, 1967 the court granted the motion and dismissed the claims with prejudice.

The fraud action was tried in January 1968 and judgment was entered on June 26, 1968. Determination of the individual claims of the class members was referred to a special master. On September 29, 1969 this court affirmed the judgment of the district court. On March 11, 1970 the movants filed their motion to set aside the August 17, 1967 order dismissing their claims. Notice of the motion was given to all those similarly situated, informing them that they would be represented by movants' counsel unless they wished to be represented by counsel of their own choosing and that the court's ruling would be binding on them. Following a hearing, the court denied the motion; from that ruling this appeal was taken.

I

Midwestern first stresses the policy in favor of finality of judgments and the limited grounds on which a Rule 60(b) motion may be granted. Rule 60(b) contains fixed one-year time limits for invoking clauses (1), (2) and (3) and requires the motion to be filed within a "reasonable time" with respect to clauses (4), (5) and (6). Midwestern argues that the unreasonable two and one-half year interval between the dismissal of movants' claims and the filing of their Rule ...


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